Bright Horizons Family Solutions Inc.

Ladies and gentlemen, we thank you for your patience. Greetings and welcome to the Bright Horizon Family Solutions second quarter 2020 earnings release conference call. All participants are currently in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Thank you. You may begin.

Thanks, Jessie, and thank you, everyone. We're on the call today. I appreciate your patience. We had some technical difficulties, so thank you all for joining. With me on the call today are Stephen Kramer, Chief Executive Officer, and Elizabeth Bolin, Chief Financial Officer. I'll turn the call over to Stephen after covering a few administrative matters. Today's call is being webcast, and a recording will be available under the Investor Relations section of our website, brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business and financial performance, including the impact of COVID-19 on our operations, are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2019 Form 10-K and other SEC filings. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. We also refer today to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website. Stephen now will take us through the review and update on the business.

Thanks, Mike. Hello to everyone on the call, and thank you for joining us this evening. I hope that you and your families are remaining healthy and safe. I'm going to begin today's call by briefly recapping our second quarter results and provide an update on our current operations. Elizabeth will then provide a more detailed review of the numbers before we open it up for your questions. The last several months have been extraordinary by any measure. Despite this, I couldn't be more proud of the incredible determination, agility, and execution demonstrated by the entire Bright Horizons family. The positive results this quarter exemplify the power of our diversified, employer-centric model, as well as our capacity and capability to effectively serve client needs. To recap, we delivered revenue of $294 million and adjusted EPS of $0.44 per share for the second quarter. In our full service segment, we are happy to report that we reopened 160 centers in Q2 and began welcoming back thousands of families to our centers. Our backup care business was a critical support to tens of thousands of families, and at the same time delivered exceptional financial results for the company. We experienced significant utilization of self-sourced, reimbursed care for both new and existing clients, nearly doubling revenue compared to last year. We also added to our education advisory client base, launching service for ADP, Leidos and Akron Children's Hospital this past quarter. I'm really pleased at how well all facets of our business perform through these unprecedented circumstances. As you will recall, we started 2020 with solid momentum across all three business segments. But as the pandemic spread in March, we temporarily closed nearly 850 of our centers globally. With this contraction, we focused our full service care operations on approximately 250 client and hub centers caring for the children of healthcare and other essential workers. We monitor guidance from the CDC and local health authorities and create a direct relationship with a leading infectious disease physician at Boston's Children's Hospital. We marshaled our resources to develop, implement, and refine enhanced COVID-19 operating protocols. These include social distancing procedures at pick-up and drop-off, daily health checks, the use of face masks by all staff, limited group sizes, and enhanced hygiene and cleaning practices, all focused on keeping children, families, and our devoted staff safe and healthy. I take great pride in Bright Horizons' leadership in this area, as our standards have been adopted by many state regulators. Before I get into the current state of the business, I want to commend the work by our operations and client relations teams. There's still a lot of work to do in the reopening and re-enrollment process, but we have made tremendous progress over the last few months, training teachers and staff on our COVID-19 safety protocols and welcoming back thousands of children and families. I'm grateful to all of our employees who have supported Bright Horizons during these difficult times. and I know these efforts have uniquely strengthened our organization. Getting to the specifics, as we talk today, approximately 725 of our centers globally are open, representing 65% of our total portfolio, and we anticipate that more than 85% of our centers will be open by the end of the third quarter. Throughout our reopening process, conversations with clients, and surveys of parents and teachers have reinforced their confidence in Bright Horizons, specifically around our experience with health and safety practices. The expertise we have demonstrated in operating childcare in the COVID-19 environment has not only allowed us to open more safely and quickly, but also provides the critical reassurance that clients and returning teachers and families deserve and require. Over time, we think this will be a key differentiator and an important reason for families and clients to choose Bright Horizons. We've also been really encouraged about the depth of conversations with employer clients, not only about their center reopening, but also how our full suite of services fit within their short, medium, and longer-term business strategy. Employers clearly recognize that regardless of the work environment, on-site or remote, it is extremely difficult for employees to remain productive while caring for a child or elder. Existing center clients have remained very supportive, and we have seen interest from both new and existing clients around investing in our lease consortium centers to supplement their onsite centers or to provide more comprehensive national solutions. The unique challenges to our business created by COVID-19 have also provided opportunities for us to demonstrate to employers that not only do we have the scale and resources to support them in all environments, but also possess the agility to develop and deploy creative solutions to meet their real-time needs. As an example, with fewer programs available to children this summer, we work closely with some key clients to quickly stand up school-age programs within some of our temporarily closed lease consortium centers, so their employees could remain productive over the summer months. This is one example that showcased our ability to work collaboratively with clients to create an effective response to solve a critical pain point in their core operations. Let me now turn to backup care, which delivered truly impressive results. As we discussed last quarter, our backup business had been on track for solid growth coming into 2020, 12 to 13%, and was tracking well in the first quarter. With school and business closures starting mid-March, the demand for backup care surged as families struggled to balance their work responsibilities and the care needs of their children. With the majority of childcare centers closed during the second quarter, in-home backup care and self-sourced reimbursed care became increasingly valuable for clients and employees in need of a care solution. Self-sourced reimbursed care has always been a valued component of our comprehensive backup offering for clients to utilize in unexpected emergency-type situations such as natural disasters. Given the national scope, severity, and rapid onset of COVID-19, the demand for self-source reimbursed care offering was supercharged, with more than half of our backup clients deploying this alternative use solution. This surge in demand certainly came with some growing pains, as we worked to accommodate the unprecedented volume of new registered users and care requests. But our ability to quickly deploy a solution for an unexpected need provided immense relief to hundreds of clients and introduced tens of thousands of stressed working parents to our services at a critical time. While self-sourced reimbursed care proved to be the right solution for many employers and workers during the early months of the pandemic, we expect to see backup care demand in Q3 and beyond to return to more normalized in-home and in-center use. Since some of the demand we fulfilled in the second quarter represents use that may have typically been absorbed in the second half of the year, we have been working with our client partners to expand employee use banks to ensure that parents who will continue to struggle with evolving work and school practices have continued access to the service. As we have spoken about on past calls, we continue to make advances in our technology and personalized marketing to improve the customer experience. As demand surged over the last few months, we deployed several enhancements to our backup system to create a more robust platform and more seamless experience for end users. In addition, we expanded Bright Horizons Central so client liaisons could self-serve reporting, something that proved invaluable as clients were tracking use during this time of heightened demand. Furthering our digital strategy, I am thrilled to share that just yesterday, we completed the acquisition of the Sitter City Business, a leading online marketplace for families and caregivers. This strategic acquisition expands our current portfolio of family-focused solutions and extends our capabilities to serve families and clients. We have enjoyed a strong partnership with Sitter City since 2013. We know the talented team well and appreciate the quality of their services and our shared mission of supporting working families with access to high-quality care. While the financial contribution in the near term is modest, Sitter City's digital capabilities and the long-term opportunity for cross-sell at the client and family level is significant. Turning now to our Ed Advisory business, which performed well given the environment, with many new client launches this year and continued solid use of our clients' workforce education programs. While the pandemic has slowed new sales decisions, learning and development remains a key investment pillar for leading employers, as the challenges of attracting and retaining key talent remain high. With College Coach offering important advice and insights around how COVID-19 is impacting the college admissions process and financial aid packages, we remain bullish about the continued long-term growth prospects of this segment. In closing, when I look back at the last quarter, one thing that stands out is the unique strength and resiliency of our diversified, employer-centric model. In response to the unprecedented crisis, we did more than just hunker down and preserve resources. We took immediate action to support clients, parents, and families in need, We played a vital role in our communities, providing care for the children of frontline workers during the early days of the outbreak. We worked diligently with local health authorities and medical experts to create safe, healthy, and nurturing environments for staff and children to return to. We deployed new solutions to employers and working parents to support their care needs as businesses and schools closed. We leaned in and made important investments, including a strategic acquisition. A silver lining from the last several months is the broad recognition of how important childcare is for our country's economic recovery and stability, and the client recognition of what a responsive and innovative partner we can be. I believe high-quality childcare will be more important to the future than ever before, and I remain confident that we will emerge from this crisis well-positioned to capture the opportunity that lies ahead.